Is the Crypto Market at Risk of a Crash as Trump Threatens to Take Kharg Island?

Key Insights

• The crypto market is at risk of a crash if President Trump takes Kharg Island.
• Iran has warned that it will respond to such an attack, a move that may boost oil prices.
• Bitcoin price has formed a bearish pennant pattern, pointing to a retreat.

The crypto market remained cautious on June 11 as Bitcoin and major altcoins traded within a narrow range. BTC changed hands near $62,727, modestly above its recent low of $59,090. Traders are monitoring geopolitical developments in the Middle East, which could affect inflation expectations, energy prices, and broader risk sentiment.

Geopolitical Risks Could Pressure Risk Assets

The crypto market may be at risk as geopolitical risks rise. The US and Iran started tit-for-tat attacks this week, with Trump warning that he planned massive attacks against the country today.

Iran has always responded to US attacks by launching missiles and drones to its allies like Bahrain, Kuwait, and Jordan.

Now, however, the crisis may escalate after Trump threatened to launch a ground invasion in Iran. He said that the US would attack and take Kharg Island, where 90% of Iranian oil passes through.

If this happens, it would mark a major escalation in this crisis as Iran would retaliate by hitting energy infrastructure projects in the region. It would also shut down the Red Sea, where 12% of sea-borne crude passes through.

An escalation would push crude oil prices higher, which would drive US inflation higher. Data released on Wednesday showed that the headline Consumer Price Index (CPI) jumped 4.2% in May. Another report released today showed that the Producer Price Index (PPI) rose 6.5%, higher than the median estimate of 6.4%. It has jumped to the highest point in years.

Therefore, the implication of all this is that the Federal Reserve will start hiking interest rates this year, even with Kevin Warsh as the Chair. Indeed, a Polymarket poll shows that most traders are expecting the bank to hike rates this year.

Some major central banks have already started cutting rates. The European Central Bank (ECB) hiked rates by 0.25%, and analysts predict that it will hike further. Analysts also predict that the Bank of Japan (BoJ) will deliver two hikes this year. Bitcoin and other altcoins often drop whenever central banks hike interest rates.

Bitcoin and Crypto Demand Have Waned

The potential US-Iran escalation would come at a time when demand for Bitcoin and altcoins is falling. Data shows that demand in the ETF market has largely dried up, with redemption rates rising.

Spot Bitcoin ETFs shed $213 million on Wednesday, continuing a four-day losing streak. These funds have now lost over $2.1 billion this month, lower than the $2.4 billion they lost last month. As a result, the funds have lost over $3 billion this year and now hold $77 billion in assets.

Spot Ethereum ETFs also lost over $167 million in assets this month after they lost $540 million in February. They have lost more than $1 billion in assets this year. Other top crypto ETFs have not experienced substantial inflows this month.

Crypto Market Crash Possible as Bitcoin Forms Risky Pattern

The other major risk facing the crypto market is that BTC price has slowly formed a highly bearish chart pattern. It has slowly formed a bearish pennant pattern, consisting of a vertical line and a symmetrical triangle. It is now in the triangle section of this pattern. This pattern normally leads to a strong bearish breakout over time.

Bitcoin price has also remained below all moving averages, a sign that bears remain in control. Therefore, these patterns and indicators mean that the coin will soon have a bearish breakout, and possibly retest the support at $50,000.

A strong bearish Bitcoin price crash will likely lead to more downside for other crypto tokens like Ethereum and Cardano.

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